Are you looking to get on the property ladder? Taking out a mortgage is not a cinch. These loans are the largest loans, and therefore, they are quite challenging to qualify for. They will tie you to monthly payments for quite a long period of time, so lenders will peruse your repayment capacity to be certain that you will not fall behind on payments. In order to qualify for a mortgage, you must have a strong repayment capacity and a good credit rating.
Fortunately, there are several schemes that the UK government provides to make it easier for people to climb their property ladder. Here comes the role of shared ownership. It depends on your financial circumstances whether you can invest in a house or not. Your financial circumstances are not favourable if you cannot arrange a deposit and make mortgage payments on time.
Under a shared ownership scheme, you purchase a share of the property and pay rent to a landlord for the rest. This scheme is available in Northern Ireland, Scotland, and Wales, and they all have different qualifying rules. This scheme is aimed at those who are not financially strong enough to be able to pay down a deposit. In other words, it is a part-buy and part-rent deal that makes monthly payments much lower.
In order to purchase a house under a shared ownership scheme, you must:
- Buy a share between 10% and 75% of the market price of the house
- Pay rent to your landlord for an unowned share.
- Pay monthly service charges and other maintenance bills
What kind of homes can you purchase through shared ownership schemes?
While there are some homes that will allow you to purchase a 10% share, most of the time, the minimum share you would need to own is up to 25%, which can go up to 75%. It depends on your financial circumstances whether you want to pay for your share from your savings or not. If not, you can take out a mortgage to purchase it.
However, if you take out a mortgage, you will have to pay down a deposit. The deposit size should be between 5% and 10% of the share you are buying. In the future, when your financial situation ameliorates, you can buy more shares. This process of purchase is called staircasing. Of course, the amount of rent will continue to go down as you keep buying more shares.
Homes you can purchase through this scheme include a recently built home, an existing home that qualifies to be bought under this scheme, and any home that meets your specific requirements, such as a ground-floor flat in case of disability. You can also purchase houses offered by associations and local councils using these schemes.
Eligibility for the shared ownership scheme in Northern Ireland
You must meet the following criteria:
- You do not have any alternative way to climb a property ladder.
- The value of the property you purchase should not be beyond £210,000.
- The share you purchase should be between 50% and 90%.
Eligibility for shared ownership in Scotland
You will have to meet the following criteria if a bought property is located in Scotland if:
- You are a first-time buyer, and housing options are very limited.
- You are a member of the armed forces, or it has been two years since you left it.
- Your income is not high.
- You are a public sector tenant.
- You are suffering from a disability.
Eligibility for shared ownership in Wales
In order to be eligible for the Wales scheme, you should meet the following conditions:
- A combined household income should not be over £60,000.
- You must be a first-time buyer. It includes even those who are starting over again after a breakup or who are relocating for work purposes to an area where the housing market is out of their league.
- You are unable to purchase a suitable property for you and your family.
- You are not permitted to sublet any share of the space you have bought using this scheme.
No matter where you are looking to purchase a house using this scheme, you will be straightaway disqualified if it is discovered that you can afford to purchase a house outright.
How will your bad credit rating affect your ability to qualify for this scheme?
A mortgage to purchase a share in a house using this scheme works like a typical mortgage. Your credibility is essential. A credit history speaks volumes about your repayment capacity. You must have a good credit rating to qualify for lower interest rates. Shared ownership mortgages for bad credit are available, but interest rates will likely be slightly higher. Further, your lender might expect you to submit a larger down payment, between 10% and 15%.
Advantages and drawbacks of the shared ownership mortgage scheme
Here are the advantages and disadvantages of the shared ownership mortgage scheme:
- The most significant advantage of this scheme is that you can purchase a house despite being on a low income.
- You do not have to arrange a bigger deposit, especially if your credit history is stellar. You can qualify for it by having only 5% of the value of the share you want to purchase.
- When you cannot afford to buy a house outright, it provides you with a stepping-stone approach.
- Despite a bad credit history, they cost less than secured loans for people with bad credit history in the UK.
- The drawback of this scheme is that when you buy more shares, every time the property value will be re-evaluated, which means the price of each share increases if the property value also goes up.
The final word
Shared ownership schemes are possible with a bad credit rating, but it is still suggested that you ameliorate your credit rating. A bad credit score will cost you a high interest rate. Make sure that you are not under any debt obligation at the time of applying for a shared ownership scheme.